‘Errors’ at AVIVA Life & Pensions

It would appear that there is no end to ‘errors’ being uncovered at AVIVA Life & Pensions. The following is a list the type of ‘errors’ that have surfaced in the last 6 months :

29th June 2010 -

We have identified an error in relation to how tax provisions for net funds were accounted for...The number of units on your policy was calculated incorrectly. As a result, your unit holding was understated.

29th October 2010 -

We have undertaken a review of claimed pension policies and have identified an error...The policy was eligible for a bonus, which was not included in the calculation of the policy value. The claim amount was understated as a result of this error.

20th December 2010 -

We have identified an error where the Guaranteed benefit and/or Guaranteed bonus were incorrect on your pension policy, following an alteration. As a result, the benefits and/or bonus were understated.

What is truly remarkable about these errors is that they are not specific to any single company that went to make up the AVIVA company. The June ‘error’ was in respect of a Hibernian Life policy, October was a CGNU policy and December was a Norwich Union policy.

The ‘understatements’ / ‘errors’ for the above policies have had a monetary value of between €9 and €6,400. I haven’t been informed as to whether any ‘errors’ identified by AVIVA Life & Pensions were overstated, in favour of the clients.

'Funds' For Thought

Global Absolute Return Strategies (GARS) Fund - Standard Life

Risk Profile : Low-Medium

This fund has similar volatility rating to a cautious managed fund but it invests in a broader range of assets. It aims to provide positive investment returns in a variety of market conditions over the medium term by providing access to a range of different assets and strategies.

The Annual Management Charge is 1.35% and there are no entry or exit charges if you invest though www.bond.ie on an ‘Execution Only’ (no advice) basis.

SuperCAPP Fund - Zurich Life

Risk Profile : Moderate

A unitised with-profits fund that aims to deliver a regular return, consistent with prevailing long-term interest rates while maintaining the potential for higher growth than a bank deposit account. The fund will have exposure to bonds, equities and cash.

Returns are distributed through Annual and Special Dividends. Dividend distributions aim to provide policyholders with a smoothed accumulation of returns over time.

It has an indicative equity range of 20% – 40%. The fund’s exposure to equity volatility is normally controlled by limiting maximum losses and gains for the majority of the equity portfolio.

The Annual Management Charge is 1%. Zurich Life also retain 1/20th of earnings, distributable as policy dividends. This latter charge is taken before the dividends are declared. For Non-Standard PRSAs only, the charge for this fund is 1.25%.

Brendan Johnston, Pensions Director, and David Kavanagh, ALM Actuary, Zurich Life, talk about the SuperCAPP Fund in a Z-Cast.

Diversified Assets Fund - Zurich Life

Risk Profile : Medium

A unit-linked fund that gives exposure to four asset classes: equities, bonds, property and commodities. The following Zurich Life investment funds are currently used to gain access to these asset classes: the International Equity Fund, the Active Fixed Income Fund, the European (Ex-UK) Property Fund (via ETF) , the Australasia Property Fund (via ETF), the Global Commodities Fund (via ETF).

Indicative Equity Exposure is 70% to 80%. The Annual Management Charge is 1%

Cautiously Managed Fund - Zurich Life

Risk Profile : Moderate

A unit-linked fund offering a well-diversified portfolio of bonds, equities and cash. It has an indicative equity exposure of 20% – 50%. The Annual Management Charge is 1%


These Zurich Life Funds can be accessed for Savings/Investment via www.investandsave.ie and for some Pension Products via www.prsa.ie. There are no entry or exit charges on the products available through these websites and they are on an ‘Execution Only’ (no advice) basis.

Some Caveats

* If you do not understand why you should save/invest in these products or what investment funds are appropriate to your risk profile, then an ‘Execution Only’ service may not be suitable for you. If you need advice, pay a fee for it and then purchase the products online.
* The above funds are not to be interpreted as a generic recommendation as each person will have a different investment profile based on their attitude to risk, term of investment and current investment portfolio.
* Some or all of the assets in the different funds are invested outside the Eurozone, so currency fluctuations may impact on the funds performance.
* The 1% Annual Management Charge on the funds that invest via ETFs does not include any charges that may accrue within the ETF.


Warning: Past performance is not a reliable guide to the future performance. The value of your investment may go down as well as up.

Pension Companies and Business Retention

Even though I am short on the full technical details of Irish Life’s ‘New Deal In Pensions’; it looks like they are moving in the right direction with regard to addressing business ‘retention’.

The ‘retention’ issue has become a major problem for pension providers. Business that was ‘new’ to the a pension company 5 years ago (approx) is not staying on their books long enough for them to make money on the transaction. Instead, the business is being moved to a different pension company, who then register this a ‘new’ business to them. And so the cycle continued....

The major reason why this is happening is a symptom of the way in which pension companies remunerate advisors. A large chunk of commission is paid up-front which is normally conditional on the business staying with the pension company for 5 years, otherwise some/all of this payment would be clawed back by the pension company.

It has taken a while for pension providers to fess up to this. The move by Irish Life, which spreads and increases remuneration, is an attempt to stem the flow of business away from them so as to build a sustainable business model.

The bar has been set fairly high by Irish Life and it will be interesting to see how their competitors react to this strategic move. A rough estimate, on the figures to hand, would indicate that the break-even for Irish Life on the new structure has been pushed out to year 10+. A competitor would need fairly deep pockets to top that.

Don’t bank on getting the best pension terms from your bank!

PRSA: Meeting financial expectations

Discount pension services provide cost effective retirement planning for you and your employees, writes Gerard Sheehy

As business owners we are always on the lookout for ways in which we can save money. If we can find a more cost effective way of doing something we tend to jump at the opportunity to add value to the bottom line, even if this means taking on some extra responsibility ourselves.

Recent economic events have made us question what we are paying for goods and services and what value is being added by third parties. Some areas for making savings are obvious, others less so. Take pension provision for example. The charging structures on pension products have become more competitive. It may be in your and your employees’ interest to do an audit of your pension costs.

It is now possible to reduce the charges on PRSAs, AVC PRSAs, personal pensions, executive pensions; approved retirement funds (ARFs) or personal retirement bonds by buying these products without the costs associated with financial advice.

The trade-off is simple - it involves spending time in order to save money. This necessitates taking a more proactive role in the selection of pension product and investment funds which gives you greater control of your product costs.

You should consider this type of service if:

(i) You have a good understanding of what type of pension product is suitable for you.

(ii) You are comfortable with selecting investment funds appropriate to your risk profile.

(iii) You want to buy a low-cost product.

(iv) You do not require financial advice.

If you feel that you satisfy these criteria you will be able to limit your costs to a single charge on the pension product of your choice. This should be no greater than a 1% annual charge on the value of your pension fund. As there is no contribution charge, 100% of any employer/employee payments are invested in the pension.

This service is not restricted to employers/employees that are affecting “new” pensions, it can also be used by those who already have a private pension and wish to transfer their existing pension funds or redirect future contributions.

You should not expect your bank to offer you this type of service on PRSA schemes, as they more-than-likely put a premium on their advice. The employee and employer could be paying (up to) a 5% charge on each payment that is remitted but they may be getting very little in the form of advice for this cost.

Even if the employer has an existing PRSA scheme in place, they should consider offering a low-cost option to those employees that have a good understanding of their financial needs.

Gerard Sheehy is a financial advisor for PRSAS. For more information log on to www.prsa.ie

The above article is in the Pension & Investment Supplement of the Septmeber 2010 Issue of Business & Finance

This is the Advertisement that accompanied the above text

Education Fees and Investment Policies. Banks? No Thanks!

Just when you thought your bank couldn’t make you feel any worse via increases in mortgage rates, account charges, and the stifling of credit; they have the gall to start delivering sermons on the need to start saving for your children’s education with one of their investment policies.

It’s all designed to scare the bejaysus out of you: motivation to save through fear. They give the impression that they are doing you a favour by highlighting the issue of education costs and prompt you to start saving as soon as possible.

There’s nothing wrong with saving for education via an investment policy, but it only makes sense to do so if you are not going to get screwed on charges. Do you want to save for your own child’s education or for the education of the child of the person that’s selling the product? If you are going to start saving for education fees you have to get the product right from the outset, otherwise you will end up with something that is not fit for purpose.

It would not be unusual for a bank to charge you 5% of every payment you make to an investment plan, plus an annual management charge of 1.5% pa of the value of your fund. Or, to put it another way; if your fund had a growth rate of 6% pa over the term of the policy the charges would reduce the growth to about 4% pa. This ‘beast’ of a product is woefully bad value for money.

In addition, your ‘make-it-up-as-we-go-along’ Government have increased the tax on growth of these investment policies to 41% AND introduced an idiotic 1% Tax on all contributions that you make to the plan.

Seriously folks, you have got to put the time into researching what is on offer in this market. You can’t really do anything about the Government Tax, except giving your local TD a piece of your mind. What you can do is focus on the product charges. It is possible to save/invest in these products without the 5% charge on each payment and reduce the annual management charge to about 1% pa. Your bank will not be able to provide you with a competitive product.

Example: If you saved €150pm for 18 years in what the bank are offering you would end up with a fund of €43,088. This would be increased to €45,867 if there was a single charge of 1% pa on the value of the fund. A potential €2,779 more in your pocket, as opposed to the banks. Both funds assume a growth rate of 6%.

Blogger Interview - @seanie_fitz

What is the best business/investment decision you ever made?

Selling a heap of my Anglo shares in 2006 and investing in an oil rig in Africa

What kind of car do you drive?

Have 3 – sporty 2 seater Merc (that was a mid life crisis thing), gas guzzling 3.5lt Range Rover (perfect for nipping down to the club for a quick 18) and of course my club car in Greystones G.C.

What is the worst financial advice that you ever received?

Being begged by the board to take the position of Chairman at Anglo, only for that I’d have had a clean pair of heels away from the place

Do you own property abroad?

Of course I do, who of us in this country doesn’t

How does the economic slowdown effect you?

Well where can we start on that one, I could talk all day on that very subject. Lets just say the I’m lucky to be married to a woman who is a millionaire in her own right (none of it of my doing)

Do you contribute to a pension plan?

Not anymore, am now a pensioner

What's your favourite film of all time?

Wall Street

Have you ever won money?

Silly question that – mainly a winner in my casino in Macau! Never won anything at the Galway races funnily enough, being in that tent always cost me a few bob

Do you own your own home?

Sadly not, my half has passed into state ownership, but the good taxpayers of Ireland allow me to stay there free of charge.

Do you invest directly in the stock market, through funds or both?
Unfortunately I’m now precluded from making any financial decisions without the sayso of a pen pusher in the High Court

What financial product/s do you consider to be bad value for money?

Anything that’s not protected from the State getting its hands on it under bankruptcy law

Do you trust your bank?

When I ran my own bank I trusted it 110%, but that’s dropped to about 100% now.


You can follow the musings of this ready dupe and charlatan of a demagogue on Twitter @seanie_fitz

Fixing the "Broken" Business Model

It would appear that the penny is finally beginning to drop with the management of Life Insurance Companies, that all is not well with the way they sell their products. In the past 10 days we have seen Irish Life attempt to undo the unprofitable practice of changing Term Insurance product providers every so often, and the Sales & Marketing Director of Friends First calling for reform of the ‘sales model’, under Government supervision.

To be honest, the Irish Life action does not go far enough and the comments from Friends First smack of desperation. Why would a Life Insurer need Government input on changing the way it sells its products? If the sales model is messed up, surely it is up to the product providers to reform the model that they are complicit in facilitating; unless, of course, there is a fear of offending a certain distribution channel and they want to be able to put the onus of change on Government.

If Life & Pension Companies are serious about reforming their industry then they need to consider the following :

● The interest of the consumer should be put to the top of their agenda
● Accept that Financial Advisors should work in the interest of their clients, not product providers
● Different pricing/remuneration for different distribution channels does not add up
● Products with 20 to 30 different commission options are not designed with the end consumer in mind
● Simplifying product charging structures so that there are [at most] two types of charges on a product
● Charging 1%pa to ‘manage’ a Cash/Deposit Fund is a rip-off
● Create an external fund, with input from the NCA and Financial Regulator, to pay for the Education of consumers on financial products/issues so that the public perception of bad value is negated
● Stop telling the market that Term Insurance is not profitable and then keep reducing your rates
● If you continue to deny reform you are leaving the door open for niche players to chip away at your book of business.There’s obviously enough 'fat' on the product for others to offer same products (more efficiently) and profitably
● Measuring the company’s success, and rewarding management and sales staff, by dubious ‘new’ business figures is all going to end in tears
● The notion that chasing the large corporate broker to fulfill your hunger for‘new’ business is folly. Treat every intermediary the same ie no special treatment.
● Devising a business plan that extends beyond 1 year
● Be more flexible in their approach to intermediaries who want to offer low-cost versions of their products and stop hiding behind the 'fear of offending your supporting brokers' line. If I want to sell it at a lower cost, by reducing my margin, so bloody what?
● Ban rebates on Term Insurance as it does nothing for retention of business. Instead,allow the intermediary to offset saving so that cost of product is reduced to consumer
● You would love for someone else to ‘impose’ fee based advice only but it’s not the solution to your woes
● Have a serious look at service issues to lower your costs as the amount of duplication is remarkable.

These issues should have been attended to before now. It is ironic that Life & Pension Companies are now ‘forcing’ the issue because it’s not working out the way they planned it. If I were a shareholder of any of these companies I would be very disappointed that they have let it go this far.

Criminal Justice (Money Laundering and Terrorist Financing) Act 2010

The above act comes into effect on the 15th July 2010. Life Assurance Companies and Financial Advisors are deemed to be ‘designated persons’ under the Act, so that means that they have procedural obligations to comply with. The bulk of the new changes that apply will be in relation to Single Premium Investments (Bonds).

Up to now ‘Customer Due Diligence’ was carried out by the Financial Advisor in the form of a Certificate of Identification. He/She held this documentation for identifying the client on file, but there was no requirement to send it to the Life Assurance Company unless it was requested by them.

From today, certified copies the identification documents will have to be sent to the Life Assurer and they will also have to satisfy themselves under the headings of ‘Sources of Wealth and Funds’. These should be incorporated into the proposal form along the basis of ‘how the money was acquired’ and ‘what is the combined income of the applicants’. Details of your ‘Occupation’ were not a requirement prior to today but this has also been included at proposal stage.

A World Cup of Economics

Guest Blog Post by Ronan Lyons

We all know the 2010 World Cup is on and at this stage we're down to the last sixteen. But what would a World Cup of economics look like? How would the sixteen countries that are left fare, if they were competing on economic factors, not football ones? Below is the Last 16 with a twist... each match is decided by a country's economic defence, midfield and attack.

Defence is getting the basics right, the platform for the rest of the performance. In economic terms, that's inflation. A quick review of economic history will show that in a world with fiat currencies, getting inflation down to a steady 2% or thereabouts is the equivalent of having a world-class defence. Too far above that and you're essentially giving things away for free. Too much below that and you start stifle yourself.

Midfield is the engine and a good economy, like a good football team, needs balance: enough both going forward and getting back. In economics, that means looking at a country's current account balance. This is essentially a measure of how much a country is in balance and living within its means. A large current account deficit is a big warning sign that an economy is unbalanced.

Attack is all about going forward. Economically, going forward means looking at a country's growth prospects. The higher GDP growth, the greater a sense of opportunity and adventure an economy has. To measure the strength of a country's attack, IMF estimates of GDP growth over the period 2008-2015 have been used. For the inflation rate and the current account balance, the same source and time period are used. And with that out of the way, let the games begin...

1. Uruguay vs. South Korea
In defence, this is no contest really. The Uruguayans still suffer from relatively high inflation (averaging 6% over coming years), while the Koreans at 3.2% are much closer to the "dream rate" of 2%. In midfield, While the Uruguayans are quite close to having a balanced account, the South Koreans have a very desirable current account balance, the average balance for 2008-2015 being just over 2%.

It's only up front where the Uruguayans start to shine. From 2000 to 2007, the Koreans grew three times as fast, but out to 2015 the Uruguayan economy is expected to grow by 4.6% on average, compared to a still very respectable 3.5% average growth in Korea.

Result: A strong attack is not enough for Uruguay. 3-1 to Korea.

2. USA vs. Ghana
The Americans have a strong advantage in defence, with Ghana still grappling with double-digit inflation while the US is expected to have the dream rate 2% on average. Neither midfield is up to much, to be honest. Both countries have large current account deficits - an average of 3.6% in the US and 8.8% in Ghana, so the edge goes to the US.

Up front, however, Ghana have by far the best attack in the competition. Average growth in Ghana is expected to top 7% over 2008-2015, compared to less than 2% in the US.

Result: Weak at the back, delightful up front, Ghana go out in style. USA win 3-2.

3. Argentina vs. Mexico
At the back, perhaps it's Mexico's membership of NAFTA but it looks to be in a different league. Inflation rates in Mexico of 4% are far better than the 9% or more predicted for Argentina.

In the middle of the park, Argentina have the edge, though, with a surplus of 2% compared to a small deficit in Mexico. Up front, things are tighter but again Argentina has the slight edge. It is expected to grow by an average of 3.3%, compared to 2.8% for Mexico.

Result: A very tight game, with Argentina's midfield and attack eventually unlocking Mexico's defence. 2-1 after extra time to Argentina.

4. Germany vs. England
Two teams that give practically nothing away at the back. England, with inflation at just 2.2%, are top drawer, but Germany, averaging 1.4%, take it to a different level. With defence like that, it's probably not a surprise that neither sets the world alight with their attack. England have the slight edge, with growth prospects of 1.3%, a little bit above Germany's 0.8%.

Therefore, this is a match that's decided by the midfield battle - and, in the middle of the park, it's not really much of a contest. England have a small deficit, 1.5%, which just can't match Germany's huge surplus of 5%.

Result: Not particular exciting. 0-0, with Germany winning on penalties.

5. Netherlands vs. Slovakia
Netherlands are almost a carbon copy of Germany, with a very tight defence (inflation of just 1.4%), world-beating midfield (surplus of 5.2%) and a relatively dull attack (growth of just 1%).

All this makes it tough for a Slovakian side with a solid defence (2.4%) and great attack (growth of 3.4%) but a soft middle (deficit of 2.8%). Nonetheless, the rate at which Slovakia is improving, plus the paucity of the Dutch going forward, means a shock may just be on the cards.

Result: One for the underdog - 1-1 after 90 minutes, and in extra time the Slovaks sneak a winner.

6. Brazil vs. Chile
Easily the most entertaining for the neutral. Here are two sides with cavalier defences (average inflation of 4.8% and 3.4%) and very potent attacks (both are expecting growth to average 3.9%), meaning lots of goals. This is probably helped in the middle of park by relatively weak midfields, with both countries facing a current account deficit (2.8% for Brazil, 1.6% for Chile).

In each of the three areas, though, Chile has the slight advantage, while add up to prove decisive.

Result: Great fun to watch, and Chile just about have the edge. 4-3 after extra time.

7. Paraguay vs. Japan
Two very different teams again. At the back, Japan are so tight as to be stifling themselves, let alone the opposition (0% inflation). As a result, they don't have much up front (growth of 0.6%), even if they're solid enough in the middle (surplus of 2.4%).

Facing them are Paraguay, a typically Latin American side with weak defence (inflation of 4.1%) but a very strong attack (3.9%) and a midfield that's not too shabby (a 1% deficit).

Result: Against a team happy to pass to themselves at the back for 90 minutes, Paraguay have to take their chances - but once they take their lead, Japan can't recover. 1-0.

8. Portugal vs. Spain
The Iberian clash features two very similar economies. Both with defences that are getting better - inflation of 1.3% and 1.5% respectively - and attacks that are getting worse (growth set to slow to 0.4% and 0.6%). Both also with hopeless midfields, thanks to large current account deficits.

Nonetheless, that said, Spain has the edge in all three departments.

Result: Probably the dullest of the fixtures. 1-0 to Spain.

Which leaves the quarter-final line-up looking like:
Slovakia vs. Chile, the winners of whom play the winners of...
S. Korea vs. USA

Germany vs. Argentina, the winners of whom play the winners of...
Paraguay vs. Spain

Guest Blog Post by Ronan Lyons

AIB Bank Charges

I received two letters from AIB on the 18th of March (both dated 30th April) informing me that the 'agreed fee arrangement' on the accounts expired on the 28th May. They went on to inform me that their 'Standard Rate of Fees and Charges' would apply from the 28th of May. A copy of their 'Business Fees and Charges' booklet was supposed to be enclosed, it wasn't.

I rang the local branch on the 18th to speak with my 'Relationship Manager' and got to talk with the person that had signed the letter on their behalf. I asked for a copy of the original agreed fee arrangement and the charges booklet. There was no sign of these a week later, so I called again. The guy that was supposed to send out the information would ring me back 'in a few minutes' - he didn't. I got to speak with the 'Relationship Manager' on the 27th, after another call to the branch. He was not aware of the previous calls.

To cut a long story short, I'm none too happy about the bank increasing the charges on my accounts. Under the existing agreement - I managed to find my copy - I pay 25% of the standard charges and, to me, this represents a fair arrangement as I'm not in and out of the branch every day. In fact, I have been in it just 7 times this year.

What's really bugging me about this effort by the bank to squeeze account holders for the errors of the banks ways, is that the letters I received were written without even bothering to look at the original agreement. They have assumed that I do not have a copy and are reluctant to furnish me with theirs.

The old agreement, dating back to 2006 and signed by the same 'Relationship Manager', states that it 'is for a specific period of time' but the expiry date is down as 'Ongoing'. It also states that I will be 'advised by letter of the expiry of the agreement one month prior to the expiry date'.

So, it seem that the expiry date of the agreement has been made up by the bank. It is also underhand to date a letter that implies that it was issued a month before a fictitious expiry date when it received by me 10 days before said expiry date.

What would you do?

The Life & Pension Industry's Vicious Circle

The Life and Pension Industry is starved of 'new' business. Economic woes have led to folk reducing or stopping their contributions for Life Insurance, Pensions and long-term Savings and Investments plans. Others have simply put off their decision to buy these products because of all the uncertainty. The Government decision to slap a 1% Levy on Life Insurance and Savings and Investment Policies has not helped matters either.

One would assume that this would lead to Life & Pension Companies introducing innovative consumer friendly ways of enticing punters to buy their products. Instead of bending-over-backwards to acquire 'new' business, it would appear that they have resigned themselves to a policy of 'rob your competitor'. I am defining 'new' business, as transactions that are not set up with another provider already and have not reached their maturity/end date.

The industry standard at the moment is to offer incentives to advisors to move their book of business from one provider to another. I cannot, for the life of me, understand why the companies are even entertaining this zero-sum game. The exercise is fraught with danger, in particular, from a consumer perspective.

In my humble opinion it is a disaster waiting to happen. The company that receives the transfer of business gets to report magical and illusory 'new' (to them at least) business figures at the end of the year. If you're a manager and you are rewarded on 'gains' in market share, then you are going to be quids in at the start of next year. If you are an advisor, you will also have received some incentive payment. Let's face it, you are not doing it for no reward. However, if you are a consumer, you are going to be caught in the cross-fire.

There may be genuine cases where transferring a transaction from one product provider to another is in the best interest of the policyholder but I would argue that, in the majority of situations the reasons for the transfers are spurious and incentive driven.

Something needs to be done. The Life & Pension Companies need to cop themselves on and stop encouraging the transfers of business from one provider to another. Otherwise, they will be mired in a mis-selling scandal and the business models that they currently employ will implode, as the same transactions are passed around from Billy to Jack every few years. They have to acknowledge that the consumer is the most important person to the survival of their business.

To the consumer, I say : 'If a proposal is presented to you to transfer from one product provider to another, make sure that the reasons for the transaction are in your best interest. Get a second opinion. Ask for confirmation, in writing, that there will be no entry or exit penalties/charges on the 'new' transaction and that you receiving a more favourable annual management charge. Ask for written confirmation from the company that the business is being transferred to that the advisor has no 'deal' with them that stipulates a required minimum level of business.'

It's very disheartening to be watching this from within the industry.

Caveat Emptor.

Surveys - What's the point?

I'm sick to death of being asked the same questions, year in year out, by the same companies. The main thrust of these surveys is to establish who 'I' consider to be the 'best' Life & Pension product provider; under a myriad of headings.

I have come to the conclusion that their sole purpose is to satisfy the egos of senior management, because the outcomes would appear to be ignored. Perhaps there is some 'bonus' payment for moving up the industry 'ranking' or maybe they want me to adapt to their corporate belief system? Then, and only then, will they "value my opinion".

You don't need an annual survey to find out what companies are in favour, it is reflected in the volumes of business they are transacting. The dogs in the street know why they are successful.

Two years ago I completed a survey for a company and raised a servicing issue. The following year I refused to complete it, as the original issue had not been resolved. Rather than implement any change to resolve the matter raised in the survey, the company choose to ignore my protest. So, what's the point?

I presume that there is an annual budget for these surveys that 'must' be spent. The inaction on the results just shows that it is a waste of marketing money. Rather than ask 'the market' what you are doing wrong, why not just ask your customer service/account managers? They are the ones that are getting the abuse on a daily basis and are closest to the coal face.

Re-Balancing of Portfolio

When you have decided on an investment strategy for your Pension or Investment Product, you will no doubt have given due consideration to as to what percentage of your money will be allocated to each asset class (Cash,Equities, Bonds and Property). This will probably be based on your attitude to risk and any existing assets that you may have.

At the end of a certain period you may decide to 're-balance' your portfolio so that you have the same percentage of your investment is each asset class, that your started out with. The changes in your investment occur because the values of the different assets will have performed/underperformed over a period of time. This is like a mini-audit of your portfolio so that you can reassess how much risk you are exposed to on a given day.

The following is provided as a practical example, using historical data, of how this works in practice and is not to be taken as advice. The assumptions used are that the Annual Management Charge is 1% and that 100% of your money was invested from day one.

€10,000 invested on 01/01/2001 into the Zurich Life's 5*5 Global, Balanced and Active Fixed Income Funds (1/3, 1/3, 1/3 respectively). The end values are calculated as at 31/12/2009.

With No Re-Balancing (no changes to initial allocation for 9 years): The value of the investment at the end of December 2009 would have been €13,291.37

If the client had re-balanced (making sure the 1/3 ratio in each Fund) on the 1st of January every year : The value of the investment at the end of December 2009 would have been €13,887.92


Again, this historical information is provided purely for illustrative purposes only and should not be construed as advice.

Compensation Schemes for Investors (Life Insurance Products)

In uncertain times, investors get worried about the security of the monies that they may have invested with the different product providers.

The scheme that operates in the Republic of Ireland (Investor Compensation Scheme) pays compensation where a firm, authorised by the Financial Regulator, is unable to return investment monies owed to an eligible client due to its financial circumstances.

There is a limit to the amount that the Investor Compensation Scheme may pay in compensation. They can only pay 90% of the amount lost, subject to a maximum of €20,000, to each investor.

Companies like Standard Life operate in Ireland as a branch of their UK parent. Therefore, their policyholders are covered by the UK's Financial Services Compensation Scheme (FSCS).

The level of cover provided by the FSC Scheme (for policies issued after 01/12/2001) is 100% of the value of the policy up to £2,000 plus 90% of the balance without limit.


Featured Product : Standard Life Portfolio Invesment Bond

Is this a concern for you?

'Cheapest' Life Insurance

In the business section of the Sunday Independent there is a regular feature which analyses various financial products. It then offers a 'Best' and 'Avoid' recommendation. Yesterdays paper included the following :

Life cover

Increasing cover of €800,000 over 35 years for a 30-year-old non-smoking chap.

Best: Irish Life €77.13 per month

Avoid: Caledonian €103.89

Saving: €321.12 per year

Contact irishlife.ie or local branch

This recommendation is way off the mark for two reasons :

1. The correct initial premium for Irish Life is €93.17 per month. The premium quoted above is for AVIVA.

2. The €77.13 is increased by 8% per annum. The €103.89 is increased by 5% per annum. If you elected for the cheaper initial premium, you would end up paying around €48,000 more over the term, than if you had chosen to pay the higher initial premium.

So, what appears as a 'Saving' initially will actually cost you dearly in the long run. Someone has not compared these products on a like-for-like basis and the outcome is a misleading recommendation.

If you are in Business and haven't read this book: You probably should.

The Innovator's Dilemma - Clayton M. Christensen


I had to share this with you. Rarely do I get excited about a book: but when one comes to your attention that is a reflection of your own thoughts and business principles, you tend to enjoy it all the more. This one fits nicely for me, as the position it adopts has a strong relevance to part of my business model.

As I read through the opening chapter, where there were strong references to the disc drive industry, I though I was going to be bored to death. What had not hit me at that stage was that, if I substituted the words 'product or service' for 'technology', the underlying message of the book would blossom.

The following are the areas of the book that I thought were relevant to the Industry that I operate in :

* Your customers/distributors may not be the best market indicators if the whole structure of the market changes.
* You can do everything right in your business and still fail, because of changes in 'product/service' and market structure.
* If you focus solely on profitable products that are currently in high demand, someone else can come into your market, from below, and bite you on the backside.
* No demand at the moment does not mean that this will always be the case.
* It is not a management priority to allocate funding to low margin products that are not in demand, until the demand arrives. By then, the company are left sitting on their hands.
* Product providers leave the door of opportunity open for more flexible low-cost competitors that eat into your market share.
* It's a marketing challenge to create a market for a product that distributors will not sell because their customers are not demanding that particular version of a product: Yet.
* Product providers can't get their heads around the notion that just because there is no hard data available to work with, for research purposes, does not mean that there will not be a demand for an innovative service or product at a future date.
* Sometimes it is important not to listen to distributors (or customers)
* Some business models evolve so slowly that product producers and distributors are not interested until the demand takes off. By then they are left with a bucket of crap and can take a few years to catch up: If they are lucky.
* Companies should chase small markets [create them even] when everyone else is focused on the gravy train


This is just a summary of what I got from the content. If there are any Life & Pension Company managers reading this, all is not lost. The author provides you with a set of rules that you should adopt so that you are not the one that ends up with egg (or something worse) on your face. It's time to make up your mind whether you are an Innovator or just an Imitator.

Some Things Just Don't Add Up

Let's say you are a 44 year old male and a non-smoker. You want to buy €100,000 worth of life cover and you are unsure as to whether you should but a Term Insurance or Guaranteed Whole of Life product.

The current cost of a Term Insurance policy to age 89 with Aviva Life and Pensions is €61.31 per month.

The current cost of a Guaranteed Whole of Life policy with Aviva Life and Pensions is €142.01 per month.

If you bought the Term Insurance and had the discipline to save the difference in premium of €80.70 per month over the 45 years,you would end up with a fund of over €160,000 (assumes growth rate of 5%pa net).

So why would you buy the Guaranteed Whole of Life product from Aviva?

Answer : You wouldn't.

1% Levy on Unit-Linked Savings and Investments

I'm a bit piqued by the 'not for turning' attitude on the Government on this Levy; as introduced in the Finance Bill.

Let's call a spade a spade; this Levy will have a negative affect my business but it also affects me as a consumer as I have a preference for saving/investing through these products. I don't fancy handing over 1% of every payment I make, to save for my family's future, to subsidise a Government that can't think beyond tomorrow.

In 1985 the Government introduced a 'temporary' insurance levy of 2% on General Insurance (house, motor etc.) premiums to assist with the bailing out of the Insurance Corporation of Ireland. 25 years later, it's still there and it was increased by 50% in 2009.

Now, the Governments attention is focused on Life Insurance Protection type policies (mortgage protection, term insurance etc.) as well as Unit-Linked Savings and Investments. They had initially planned to apply the 1% Levy to private Pension policies but did a u-turn on the wisdom of that between the publication of the Budget and Finance Bill. The 'great minds' that had the temerity to even think about slapping a levy on these pension policies should be the ones that are emigrating.

Anyway, back to the title of this post. I understand that Government need to raise revenue to bail out the reckless spending and lending that has landed us in the mess we are in, but I don't understand the train of thought that goes along with some of the areas they are hitting.

Here is a summary of why I think that the 1% Levy on Unit-Linked Savings and Investments is a bad fecking idea :

# It's Anti-Competitive - It does not apply to all similar type products in this sector.
# It's a deterrent to save/invest - Folk should be encouraged to save so that they have something to fall back on when their Country goes bust, just to keep the show on the road.
# I would have serious doubts about the anticipated revenue it will raise - Do they (DoF) even know?
# The Government take tax at 41% of the growth on these funds already.
# Consumer groups have been campaigning for a long time to reduce the costs of these products - not increase them.
# There seems to have been no thought given to the costs of administering the collection of the levy.
# It punishes those that are being prudent with their money by saving for the long-term - Unlike you-know-who.
# It will drive savers/investors to the doors of the Banks and Post Office - Think about that one!
# There is no 'plan' as to how long this levy will apply - "Shur they'll get used to it like the Insurance Levy".
# It comes at a time when the Government are introducing their own medium to long-term savings scheme via the National Solidarity Bond - No levy on that then. Ahem!!!


Folks, would there be any appetite out there to get the Government to reverse this levy on Unit-Linked Savings and Investments? They haven't listened to the Industry heads. Do you think that they might listen to the consumers?

UPDATED 30/12/2011

The 1% Levy on the Savings & Investment product available at www.InvestAndSave.ie will not apply for the term of the contract.

The F.U. File

I keep a file in my office, simply titled F.U. It's littered with F**k Ups by Life and Pension Companies over the past 3 years. F.U's that cost my business money. There are also letters from these companies offering 'sincere' apologies for their incompetence and assuring me that the 'problems' have been rectified. To be honest; these letters are as empty as the heads that wrote them.

It was my hope that 2010 would bring some change to the way Life & Pension companies do business. Alas, it has begun the way that 2009 ended; same story, different year. I don't think that I would have higher expectations of customer service than other Financial Advisors. From talking with a few others before Christmas, it would appear that they are also experiencing servicing difficulties with some of the players in the market.

It really is baffling that the very companies that are losing business and market share cannot up their game to win new business by providing a superior service to customers. It seems that 'buying' business is where it's at in management circles but this method of business growth is not good news for the end consumer.

What I would like to ask the readers of this Blog is this : 'Do you think that I should post i) details of servicing issues that I am having with companies here ii) the names of the companies involved and iii) the name/s of the individual/s responsible for the F**k Ups?'

In your opinion would it hinder or help with customer service?

Have Bank Mangagers merely become 'fluffers' for their Financial Planning Consultants?

A client of mine lodged a six figure sum in her AIB current account just before Christmas. Within 48 hours the bank manager was on to her acknowledging the lodgement and asking if she had any 'plans' for the money. The client is savvy enough to recognise what she would consider to be a genuine interest in her finances and what was a sales pitch. The client told the manager that she had 'plans' for the money and the telephone conversation ended. The client subsequently received a letter from the bank manager listing '..some Deposit Options for consideration.'

As I understand it, AIB are under pressure to take in as much deposit money as possible as it is their principal source of funding at the moment. The bank says that they are continuing to "target a progressive reduction in their loan to deposit ratios" and that they are selling some assets as part of an ongoing strategy to successfully unlock "shareholder equity for its core business activities". Last time I checked, 'core activities' meant 'Deposit Taking' and 'Lending' not 'Holistic' Financial Planning.

I'm finding it difficult to reconcile what they are saying and what they are doing. If they are so anxious to take money in via Deposits, why are they continuing to use their deposit base as a gravy train for the investment products that they offer through AVIVA?

The letter that I mentioned above, titled "Deposit Options", also contained the following paragraph : "Ideally we recommend you to meet with Financial Planning Consultant who will cover off all the options available including some long term funds with potential to outperform Deposits."

Seriously; have the Bank Managers merely become 'fluffers' for their Financial Planning Consultants?

The use of the words "all the options available" suggests that the Financial Planning Consultant might recommend a Deposit Account, perhaps with another institution, that is offering a higher rate of interest. It also implies that the Consultant may recommend an investment product from all the options available on the market. Nothing could be further from the truth. The Consultant would either recommend an AIB Deposit Account, an AVIVA Investment Product or a combination of both. They don't recommend the more competitive products available elsewhere on the market.

I think that it's about time that someone took them to task on the way that they present themselves to their customers. It is about time that they were banned from the 'sharing' of Deposit Account holder information with their Investment Salesmen/women. It is also a pity that the Department of Finance did not make some reference to the movement of Deposits with Banks to Investments with linked companies, when they decided to Recapitalise the Banks last February.

'Personal' Financial Review of 2009

Highs

* Brendan Investments - Pan-European Property Plc. Fund - Small investment in December 2007 - Very happy with it's progress, relative to its peers, and the management are doing a very good job. It is a fund that I would expect to do very well.
* Switched an under-performing pension fund from one provider to another as part of a re-balancing of asset allocation. Increase in value of 35% since February 2009 through a combination of investments in Earth Resources, European Equity, Asia Pacific Equity and Gold Funds.
* Took a 50% stake in 3 small commercial property units in 2006, near Helsinki Airport, and all units continue to be occupied, so I am happy about that.
* Had no exposure to Irish Banks Shares.

Lows

* A fairly hefty reduction in my income level, but this was expected due to the changes in my business model and recessionary factors.
* Nominal value of 50% share in apartment in Tenerife (purchased in 2000) is obviously down but I have no intention of putting it on the market anytime soon, as family and friends make good use of it.
* Had to dip into savings but was fortunate enough to put something by for the 'rainy days/years'. "Without savings, there is no future."
* The amount of judgements against Banks etc., highlighted in the Financial Services Ombudsman's Reports, for misselling financial products.
* The 'fall off a cliff' service levels from some Life & Pension providers.

Outlook 2010

* Clients will continue to regularly invest in a well diversified portfolios of low-cost unit linked funds, both managed and index-tracking. Personally, will not be making any investments in property but I would not deter clients from investing in some sort of diversified 'liquid' global property funds.
* Continue to offer value to my customers by relying on a fraction of income that other need to operate profitably.
* Funds I like - GARS and Global REIT from Standard Life. Diversified Asset, Earth Resources and Cautiously Managed from Zurich. But, you should buy these from a Discount Broker, so as to reduce costs.

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